Friday, May 30, 2014

In this
multidistrict litigation, the district court dismissed the claims after limited
discovery, and the court of appeals affirmed.

Defendants claimed
that their flea control products dispersed over pets’ bodies via the skin/hair after
being applied to one area.To streamline
the case, the district court framed it as turning on a single issue—whether these
claims were substantiated.Defendants
had the initial burden of producing studies to substantiate the claims, and
then plaintiffs would have to show that the studies were unreliable,
inaccurate, or incomplete. The
plaintiffs agreed to this case management plan, but then sought discovery on
additional issues.The district court
denied most of those request and granted summary judgment to defendants.

Defendants submitted
several studies, including a peer-reviewed study which applied Bayer’s product
on dogs, and tested dog hair and skin samples for distribution of the product’s
active ingredient and a doctoral dissertation that topically applied Merial’s
product on dogs, and tested dog hair samples for distribution of the product’s
active ingredient.Plaintiffs submitted
their own studies.The district court
concluded that defendants had a good faith basis for their claims; the parties
failed to reach settlement and defendants weren’t interested in commissioning a
neutral study as the district court suggested.The district court then allowed discovery into consumer complaints, on
the theory that evidence that the companies had received a large volume of
consumer complaints would call into question Bayer and Merial’s good faith
reliance on their studies.After that
came the summary judgment ruling.

The court of appeals
first affirmed reliance on the case management plan, which treated the case as
having only one dispositive issue, and its associated discovery limits, to
which the plaintiffs agreed. “[A]lthough they gave up discovery and some of the
claims in the case, they got something in return. They no longer shouldered the
initial burden of disproving the defendants’ advertisements; the defendants
instead shouldered the initial burden of substantiating them.”

Then the court of
appeals agreed that defendants met their burden, and plaintiffs didn’t
successfully refute their studies.Plaintiffs argued that their studies showed the presence of the products
in animals’ bloodstreams, “which when considered in isolation might suggest
that the products spread internally rather than by translocation.”But the study also detected active
ingredients in the pets’ hair twenty-four hours after application. Plaintiffs’
study asserted that its protocol was superior to the protocol used in Bayer and
Merial’s studies, but it did not attack the basis of Bayer and Merial’s
studies. At best, this was a conflict,
but that didn’t meet plaintiffs’ burden of showing that defendants couldn’t
rely on their own studies in their advertising.More than mere assertion that defendants’ studies weren’t as good was
required.“By requiring the plaintiffs
to submit studies that demonstrated why Bayer and Merial’s studies did not
provide a good faith basis for their claims, the district court was able to
avoid a ‘battle of the experts’ and the attendant costs, which was another
objective of the case management plan.”

Plaintiffs argued
that the truth of the claims was at issue, but “if veracity was the central
issue in the case, one would expect the plaintiffs to bear the initial burden
of showing that Bayer and Merial’s claims are false.” Instead, the central
issue was whether the plaintiffs could cast doubt on Bayer and Merial’s good
faith basis for their advertising claims through expert studies. “The plaintiffs’ studies did not attack the
basis of Bayer and Merial’s studies; they merely asserted an opposing
conclusion.”

Comment: I would think that expert
analysis of the defendants’ studies, not (or not just) conflicting studies
would be required; otherwise there is, as the court of appeals says, just a
disagreement, not an explanation of which is better. The court's discussion of the plaintiffs' burden suggests that this is true, even though some of its language could be read as requiring plaintiffs to submit studies of their own.Since
plaintiffs failed to show that Bayer and Merial’s studies were unreliable,
inaccurate, or incomplete, summary judgment was appropriate.

The court of appeals
also rejected the plaintiffs’ argument that the defendants’ studies were never
subjected to Daubert analysis because
this argument was raised for the first time on appeal.

Thursday, May 29, 2014

I’m going to try, with probably limited success, to
summarize results rather than reasoning for most of this consumer class action
case in which certification of a California class was granted, and focus on the
interesting damages model bits.Werdebaugh sued Blue Diamond for listing the sweetener on its almond
milk as “evaporated cane juice” instead of sugar, and using “All Natural” when
in fact the products allegedly contained synthetic ingredients.

Werdebaugh had standing to bring his claims for damages, but
not for injunctive relief.His
deposition testimony clearly showed that he wouldn’t have bought Blue Diamond
almond milk had he known about the alleged misbranding, which sufficed.He testified that he was unfamiliar with the
product, but “the ‘all natural’ label stood out” to him. He “stood at the shelf
and saw this packaging and picked it up, read the labels, and made the
purchase,” and the “all natural” label was a substantial reason why.Werdebaugh further testified that he was concerned
about seeing “evaporated cane juice” on the ingredients list, but did not know
that it is “the equivalent of table sugar.”

Blue Diamond argued that it was implausible for Werdebaugh
to believe that the products didn’t contain added sugars, since the nutrition
facts panel that the almond milk contained 20 grams of sugars, and anyway he
didn’t know what “evaporated cane syrup” or “dried cane syrup” was either so
his purchase decision wouldn’t be affected by using those terms either.The court disagreed.The ingredients wouldn’t necessarily have
indicated the presence of added sugars; Werdebaugh testified that he thought
the 20 grams of sugar in the product he purchased was not added sugar, but
rather was “an actual squeezed element of an almond that naturally occurs.”Though he testified that “dried cane syrup”
wouldn’t have affected his purchase decision, that just showed that he didn’t
know what it was.He’d still introduced
sufficient evidence of reliance on both statements.

Ascertainability: not a problem, especially limited to a
California class.The class was defined
based on objective criteria, and that was enough.

Numerosity: but of course.

Commonality: Blue
Diamond argued that what’s material varies from consumer to consumer.“The law is to the contrary…. Whether Blue
Diamond’s label statements constitute material misrepresentations does not
depend on the subjective motivations of individual purchasers, and the
particular mix of motivations that compelled each class member to purchase the
products in the first place is irrelevant.” Blue Diamond also argued that the allegedly
deceptive labeling statements were not specifically regulated and, therefore, were
not material, since the only official guidance came from “non-binding FDA
policy statements.” But at this stage, the only question was whether
materiality was a common question.Finally, Blue Diamond argued that “All Natural” had no common definition
and thus was not susceptible to common proof.But cases using that reasoning generally involved representations that
differed for each class member, such as representations made by doctors
prescribing drugs. Here, the alleged misrepresentations were the same to each
calss member, so the objective inquiry into whether “a reasonable consumer
would attach importance” to Blue Diamond’s label statements was a question
common to the class. And, unlike the Astiana
case cited by Blue Diamond, where over 90 different products with different
ingredients and different ad campaigns were challenged, Werdebaugh was only
challenging seven products, all based on their inclusion of the same ingredient
(potassium citrate).Blue Diamond didn’t
contend that differences in its products’ labels would cause prospective
consumers to understand the representations differently.

Typicality: Blue Diamond objected to including products
Werdebaugh didn’t buy—he only bought Blue Diamond Almond Breeze Shelf Stable
Chocolate Almond Milk.But every other
product included in the class definition was an almond milk product, and each bore
one or both of the same misbranded label statements. They were different
flavors, but the legal theory was identical for all claims. That’s typicality.

Blue Diamond then argued that Werdebaugh’s claims were
atypical because he didn’tread or review the back label, which contained two of
three “All Natural” statements. But Blue
Diamond didn’t persuade the court that he needed to read and rely on all
alleged misrepresentations; even if he didn’t read two repetitions of “All
Natural,” “he read the third, and Defendant provides no reason to distinguish
between the three statements.”Reading
it on the package once was enough for typicality.

Nor were defenses unique to Werdebaugh likely to become the
focus, since under California consumer protection law “individual experience
with a product is irrelevant” because “the injury under the UCL, FAL and CLRA
is established by an objective test.” Regardless of his particular motivations
for purchase, “he shares with the proposed class the same interests in
determining whether Blue Diamond products were deceptively advertised and
labeled.”

Adequacy: yep.

Predominance: not for a nationwide class per Mazza, but for a California class.

Blue Diamond then argued that there was no predominance
because Werdebaugh hadn’t identified an appropriate damages model, an argument
the court analyzed in detail.An
appropriate damages model under the Supreme Court’s recent Comcast ruling must measure only damages attributable to the
defendant’s conduct.

Restitution was available under California consumer
protection law to compensate the purchaser for the difference between a product
as labeled and the product as received. For this, Werdebaugh needed a damages
methodology that could determine the price premium attributable to Blue
Diamond’s use of the labeling statements “All Natural” and “Evaporated Cane
Juice.”

The court rejected a full refund model, because it was
wrongly based on the assumption that consumers receive no benefit whatsoever
from purchasing the accused products.

Then, the court turned to Werdebaugh’s expert’s price
premium model, which compared the price of the accused products to allegedly
comparable products without the challenged statements and calculated the entire
price difference as restitution.The
court also rejected this model. “[The expert] has no way of linking the price
difference, if any, to the allegedly unlawful or deceptive label statements or
controlling for other reasons why allegedly comparable products may have
different prices.” The comparison
product (a Whole Foods house brand) itself included the objectionable
ingredient potassium citrate; the label listed “organic evaporated cane juice”
as an ingredient until 2013; and the alternative was currently priced the same
as the challenged Blue Diamond version at Whole Foods stores in San Francisco
and Palo Alto. Werdebaugh’s deposition testimony also indicated that consumers
typically pay a premium simply by buying from Whole Foods, which the model didn’t
account for.The price premium model
just calculated what the price difference was, without tying it to a legal
theory; it didn’t account for factors that might lead consumers to prefer Blue
Diamond over “other identical products.”These factors could include “brand loyalty or quality differences
between brand and generic products.”(If
they’re identical, why the brand loyalty?)

However, a regression model saved the day (or ruined it, if
you’re Blue Diamond).By controlling for
commonly recognized factors associated with sales—“price of the product, prices
of competing and complementary products, income, advertising, seasonality, and
regional differences”—as well as by taking into account differences in sales of
the products before and after the “All Natural”/“evaporated cane juice”
labeling, a more precise measure of damages could be calculated.

Blue Diamond argued that this model would raise individual
issues not subject to common proof because consumers experience price variation
across “products, sales channels, retailers, geographic regions, and time.” For example, “the price for the top selling
shelfstable Blue Diamond almondmilk product in 2012 varies by 26% across sales
channels, by 31% across the top three retailers, and by 40% across cities in
California.” But that’s kind of what the regression controls for, and Blue
Diamond didn’t explain how these differences would affect the measure of
damages—“price changes within regions that correspond to the introduction
and/or removal of the allegedly misleading label statements.”Even if a carton costs $4 in San Francisco
and $3 in Sacramento, that wouldn’t necessarily affect damages—the price might
have risen by a constant amount or by a percentage, but either way it could be
calculated classwide.(This would also
be easier with a class limited to California instead of nationwide.)If Blue Diamond introduced evidence that the
price increase attributable to the allegedly false labeling would be 20% in San
Francisco and 2% in Sacramento, the model might well fail under Comcast, but Blue Diamond didn’t explain
why that would happen.

Blue Diamond also argued that retail prices varied and that
it didn’t set retail prices, and that using a weighted average price measure would
undercompensate some consumers and overcompensate other, but that didn’t
address the way the model purported to measure price changes from the allegedly false advertising.The model controlled for regional
differences.Comcast doesn’t require calculations to be exact, only that a model
supporting a damages case has to be consistent with the theory of liability,
both at certification and at trial. Even with regional differences, the
regression model was sufficiently precise under Comcast, and could control for non-liability-producing factors.

Blue Diamond said that the methodology was too vague, but at
this stage what is needed is a workable model, not necessarily a model that
actually works. “Comcast did not
articulate any requirement that a damage calculation be performed at the class
certification stage,” so the fact that the expert had yet to actually run the
regressions and provide results, and would need discovery to do so, wasn’t
necessarily fatal.Blue Diamond couldn’t
succeed by attacking the specific variables of the regression the expert posed,
if the tool of regression analysis itself was appropriate, as it was.

Wednesday, May 28, 2014

The court sets the stage: “This case is the latest skirmish
in the on-going battle between two carpet-cleaning rivals, and is the federal
court spill-over of their hotly-contested Pennsylvania state court lawsuit.”Extremely
briefly: Whittaker and his company sued Peek (et al.) in state court.Peek’s coventurers were former Whittaker
employees, and Whittaker initially obtained a preliminary injunction against
Peek, which Whittaker then disseminated in the carpet-cleaning world.When discovery had taken place, the state
court dismissed trade secret claims against Peek as without foundation (and
dismissed claims for violation of restrictive employment covenants because they
had by then expired).

Among other things, Whittaker’s computer expert at the state-court
PI hearing testified that Stephenson, one of the state-court defendants, had connected
hard drives to Whittaker’s computer network that were capable of downloading
all the information in Whittaker’s customer databases.Plus, Whittaker argued that the state-court
defendants were attempting to use chemical formulas for carpet-cleaning fluids,
and the identity of the manufacturer of those fluids, which were trade secrets,
as was the identity of Whittaker’s equipment manufacturer (with which the
state-court defendants had discussions).On this basis, the state court granted a PI on the grounds that the
state-court defendants “engaged in a conspiracy to unlawfully utilize
confidential information and trade secrets obtained while [state-court
defendants] Stephenson and Offutt were employed by [Whittaker Co.] and use this
information to the advantage of all defendants by engaging in a business
competing with [Whittaker Co.].” The PI
was appealed and affirmed.

After substantial discovery, the same judge dismissed the
state-court complaints, finding “no evidence that any defendant obtained a
compilation of [Whittaker Co.’s] customers and customer data.” As it turned
out, Whittaker admitted that Stephenson’s laptop didn’t have any access to the
customer databases.And those external
drives contained nothing that could be “considered to be trade secret or confidential,”
nor did anything else he took.The
identity of Whittaker’s fluid manufacturer was well known, not a trade secret,
and the formula belonged to the manufacturer, not to Whittaker, which didn’t
even know the formula.With no evidence
of any trade secret misappropriation, the complaints failed; the state-court
judge observed that “the record presently before the [c]ourt is much different
that [sic] the record upon which the [c]ourt relied in issuing its preliminary
injunction.”

Peek (et al.) then sued in federal court, alleging that the
initial state-court claims were knowingly false when made.Peek also alleged that Whittaker sent
copies of the PI as soon as it was issued to third-party carpet manufacturers and customers to persuade
them not to do business with Peek, and successfully persuaded the fluid
manufacturer not to sell to Peek’s company.

The court sustained plaintiffs’ Dragonetti Act (codified
claim for abuse of process) and common-law abuse of process claims in
part.While there was probable cause to
proceed on the anticompete clause in the relevant employment contracts—there
was evidence that a former employee did seek to breach his agreement, and so
the Dragonetti Act claim based on the lawsuit against him failed—that didn’t
make all the state-law claims immune.The other plaintiffs (Peek, never an employee, and the company Peek
formed) could still proceed, since all of Whittaker’s claims against them were
based on trade secret/misappropriation allegations.And those were the ones that allegedly always
lacked probable cause.The complaint
also sufficiently alleged an improper purpose, interference with plaintiffs’
ability to establish a competing business.Because the legal analysis differed a bit with the common law abuse of
process claim—the question was whether the legal process in question was used
“primarily not exclusively to achieve a goal unauthorized by the procedure in
question”—even the existence of probable cause wasn’t enough to defeat it, even
as to the former employee.

Lanham Act false advertising: “While Plaintiffs’ claim may
not be a textbook Lanham Act cause of action, the Court has not found, nor been
presented with, any case law suggesting that Section 1125(a) contains any sort
of prohibition or limitation that would preclude this false advertising claim.”Plaintiffs alleged that defendants’ knowingly
false statements about their own products—that they, and information about
their origin and manufacture, were trade secrets that had been misappropriated—were
the basis for the PI.Defendants then
publicized the PI, which included factual recitations based on these allegedly
false statements, to customers and third party businesses.Plaintiffs further alleged that this
dissemination did in fact deceive recipients and influence their purchasing
decisions.Though Section 1125(a) does
not have “boundless application,” this was plausibly “the type of unfair trade
practice contemplated by the text of the statute.”

Comments: (1) For once, I don’t see a Dastar problem, since the falsity wasn’t in the claim of origin but
the claim of trade secrecy; even if you don’t think that’s a statement about the
characteristics of defendants’ goods/services, it does seem to be a statement
about plaintiffs’ commercial
activities, also covered. (2) Interesting interactions here with the line of cases saying that "we sued X for patent infringement" isn't generally actionable as false advertising. By sticking so closely to abuse of process, plaintiffs seem to have avoided that caselaw.

State law unfair competition claims, which tracked the Restatement
(Third) of Unfair Competition definition, also survived.Here the Restatement does require statements
about the actor’s own goods,
services, or commercial activities, but the court considered this “nearly
identical” to §43(a)(1)(B) anyway.

The fraud claim was dismissed because plaintiffs themselves
didn’t receive the misrepresentations or rely on them.Under Pennsylvania law, the plaintiff must be the one who
detrimentally relied to bring a fraud claim.

The court ended by reiterating that it was taking the facts as alleged in the light most favorable to plaintiffs; all depends on factual development, which if history is any indication will be extensive.

Chiquita buys millions of pounds of bananas per year,
including from a company named COBIGUA in Guatemala. Chiquita made a number of claims about its environmentally
safe business practices, “including, among others, that it protects water
sources by reforesting all affected natural watercourses, using solid waste
traps at all packaging stations to keep rivers and streams clean, and planting
cover crops in all drainage ditches of banana farms rather than allowing
chemical weed control.” Plaintiff WSH is
a nonprofit dedicated to providing sustainable clean-water systems to people in
impoverished villages around the world. It avoids buying food from companies that
destroy such clean-water systems.

WSH alleged that it relied on Chiquita’s representations
about its environmentally safe practice, then learned that the community in
which COBIGUA produced Chiquita bananas had chemicals contaminating the
drinking water from large scale, mono-culture banana production.

The court first dismissed WSH’s unjust enrichment claim,
which requires the defendant to know or appreciate the benefit conferred on it
by the plaintiff.Though Chiquita
allegedly received at least part of WSH’s purchase money, the court found that
WSH didn’t plausibly allege that Chiquita had an appreciation or knowledge of
the revenue from the purchase.

The other claims fared better.

A claim under Washington’s Consumer Protection Act requires
(1) an unfair or deceptive act or practice, (2) occurring in trade or commerce,
(3) that impacts the public interest, (4) that injures plaintiff in her
business or property, and (5) causation. Chiquita argued that WSH didn’t plausibly
allege injury to business or property, but allegations that WSH relied on the
advertising and wouldn’t have bought the bananas had it known the truth were
sufficient.

Similarly, the breach of express warranty claim
survived.Chiquita argued that the
complaint only speculated that the bananas WSH bought were grown in Guatemala.But the claim wasn’t limited to the
allegation that the bananas were produced in Guatemala.Rather, WSH alleged that Chiquita advertised
that it protected water sources in a number of ways across all its production.WSH’s
allegations of reliance and falsity with respect to a Guatemala site therefore
plausibly alleged a claim for breach of express warranty.So too with the negligent misrepresentation
claim.

However, the claim for injunctive relief was dismissed,
because WSH didn’t plausibly allege that legal remedies were inadequate.

Creative Commons/disclaimer

Text on this blog is licensed under a Creative Commons Attribution 2.5 License. Pictures and works quoted may be subject to other parties' copyrights.
I speak for myself. On this blog, I do not and cannot speak for Georgetown Law, the Organization for Transformative Works and/or AO3.